FROM MAGAZINE: Kenyan flower sector grapples under old & new challenges

Kenya’s blooming flower industry is battling old and new challenges that are threatening its position as Africa’s leading producer of cut flowers. From a new Australian fumigation regulation to high costs of production and logistics, the industry is struggling to keep its head high, even as associations are employing rescue measures to keep the business viable.

As the fourth-largest exporter of cut flowers in the world, the Kenyan flower industry has added colour and fragrance to many an event across the world. It is, however, staring at uncertainty as a new Australian fumigation regulation threatens to dim its future.

From September 1, 2019, a new import permit regime requires fumigation at the point of origin. If phosphine is used then it will require 18-30 hours of fumigation, drastically reducing the shelf life of the flowers. The regulation, approved by the Australian National Plant Protection Organisation (NPPO), offers an alternative – methyl bromide fumigation – but that is banned in Kenya and also Europe.

“If methyl bromide is banned in the country of export, a systems approach or alternative treatments should be used to manage pests on flowers or foliage intended for Australia,” states the regulation copy available on the Australian government’s department of agriculture website. Outlining the systems approach, the regulation lists steps critical to managing a quarantine pest to achieve Australia’s import requirements.

Expressing concern over the new import regulation, PJ Dave Group general manager George Mathew, states, “The regulation will affect all Kenyan exports as Australians want zero infestation, which is not possible. If at all the Kenyan government supports the usage of methyl bromide, Europeans, who ban its use, will not buy from us. Another option is the usage of phosphine, which takes 18 hours [of fumigation] affecting the vase life. We also do not have fumigation centres in Kenya. It may cost up to KES 500 million to set up a fumigation centre. From September 1, all the Kenyan exporters to Australia will have to apply for a permit. If we fail to do so, we will be banned. For this, the Kenyan government and flower associations are working together to find a solution.”

As per Kenya Flower Council (KFC), in 2018, Kenya’s flower export revenue stood at KES 113 billion and the volume of exports touched 1,61,000 tonnes, out of which 59 percent went through auction.

The stakes are high and the associations in Kenya have come forward, as exporters hope to find a way out.

Clement Tulezi, CEO, KFC, cites, “We have remained in negotiation with the Australian authorities led by KEPHIS (Kenya Plant Health Inspectorate Service) in finding a practical solution to phytosanitary challenges. Many options are still on the table, including enhanced systems approach, and fumigation is among the alternatives we have. We are assessing the possibility of a fumigation facility in Kenya that would be easily accessed by exporters. Many investors are showing interest in setting up of these facilities, but there are many issues to consider including its location, active ingredients, and the type. It may take slightly longer than we anticipate. Kenya is keen to maintain the Australian market, therefore, exporters, the Kenyan government, partners and the Australian authorities are in dialogue.”

Meanwhile, a few exporters from Kenya have joined a local trade body – Australian Flower Traders Association (AFTA) to lobby to the Australian government. AFTA has proven to the Australian Department of Agriculture that the tetrancychus urticae, a commonly found mite, is not of biosecurity concern to Australia.

Regulatory challenges
While the new regulation is turning out to be a nightmare for the Kenyan flower industry, it has been already burdened with certain existing challenges. KFC, the umbrella body of Kenyan flower producers, is looking at understanding the markets through effective research and recommendations into tariffs and barriers. It is stimulating and closely working with government agencies like KEPHIS, EPC, Horticultural Crops Directorate (HCD), and ministry of trade that deal with barriers to trade.

Commenting on the initiatives to promote Kenyan flower exports, Tulezi observes, “KFC has embarked on rigorous promotion of the KFC Label in the marketplace. The focus is on re-branding the KFC Certification Label for broader acceptability at the international market, continued engagement with Floriculture Sustainability Initiative (FSI) and other strategic partners to better profile the KFC label.”

Logistics solutions
Even though excessive regulations exist, the exporters leave no stone unturned to focus on the most complex challenge – ‘logistics’. Mohan Choudhery, CEO of Black Tulip Group-Kenya, says, “Logistics play a very important role in the whole supply chain. To simplify the process, a logistics provider needs to come up with solutions wherein the product reaches the destination at required temperatures, offer good cooling facility for the products arriving at the airport, bring the solution to flight delays by introducing more flight options, increase the space capacity during peak season and ensure there are no offloads.”

Echoing Choudhery’s sentiments, Rathan Puttaiah, general manager of Barak Roses, adds, “To streamline the logistics process, we need a faster acceptance of cargo and standard documentation of data at reception point – number of boxes, temperature, arrival time and box weight. The processes are straightforward, but costs remain high. Therefore, we would like to see a reduction in air freight rates.”

Direct vs Auction
Auction, the traditional method of flower export in Kenya, is undergoing a transformation to direct. To boost the flower industry, the Export Promotion Council (EPC) and KFC have planned to open a cut flower distribution centre in the province of Hunan in Southern China, in an attempt to boost export volumes and give access to a direct sales link to the Asian market. When the proposed distribution centre becomes operational, producers of cut flowers in Kenya will be able to airlift their flowers directly into Hunan. As of now, Kenyan flowers largely access Chinese markets through an auction in Amsterdam, the Netherlands. On the other hand, China Southern Airlines is also launching direct flights between Nairobi and Changsha. In a bid to achieve the target of growing exports by an average 25 percent every year under the Integrated National Exports Development and Promotion Strategy, Kenya has made the Chinese market accessible on priority.

Commenting on how the direct route threatens the auction method, Mathew, states, “Dutch auction has been around for quite a long time and we are the members of Royal FloraHolland. We do send 20 percent of our produce through auction. Auction is a trading system that we cannot ignore but at the same time prices can fluctuate based on demand and supply, and even we end up selling at a lower cost. On the other hand, a direct sale is a money spinner for farms. Yes, it has reduced from the days when growers used to sell 100 percent of their produce to the auction. But that does not mean auction will die.”

Agreeing to the fact that the direct route has consumed a major market share, Choudhery, cites, “With the growing competition one has to look for direct markets as auction cannot support year-round and auction prices are also unpredictable. Supplies to the auction are also not stable. Over the years, Black Tulip Group has developed a very good direct market and has assured its clients consistent supplies with good quality.”

Despite relative success, the Kenyan flower industry continues to grapple with a number of challenges. Speaking about them, Tulezi, observes, “The challenges range from policy implementation, unfavourable regulation, taxes, high costs of production, logistics, changing market demands, low visibility in potential markets, tariff and sanitary and phytosanitary barriers, among others. The high freight rates, lack of cargo capacity during peak season, low prices in the market, increased levies, and stringent conditions in some key markets, coupled with delays in refund of VAT locally, underline the need for government’s support to the industry.”

He continued that the sector would grow tremendously if the Kenyan government seriously considered tax incentives, VAT exemption of equipment and agrochemicals, deduction on the cost of energy, a speedy refund of VAT, and abolishing withholding tax on Kenya’s flowers at the auction.

This story was originally published in Logistics Update Africa's July - August 2019 issue.